Update on SoftBank after Q2 2020 results

SoftBank Group (9984 JP) reported Q2 results, for the period ending Sept 30, 2020.

Materials: financial report, presentation, conference, status of share buy backs

Highlights

  • Son declined to comment on management buyout plans
  • NAV reported at $ 258bn
  • Masa addressed and defused three common worries
    • Debt levels: net debt to equity value stood at 12%
    • Unlisted equity: stood at 8% only of equity holdings value
    • Derivatives portfolio: fair value of derivatives comprises 1% of NAV
  • Share buy backs are progressing
    • USD 1.3bn spent on buy backs in Oct
    • Many more to come
  • The board has a higher ratio of external members now (announcement)

Update on NAV

Masa concentrates on NAV or net asset value only. This is the one KPI all his actions aim to increase. It also called shareholder value and is calculated by subtracting net debt from equity value of holdings. As of Sept 30, 2020 Masa presented a NAV of USD 258bn, up 58bn over six months.

extraction from presentation

Its NAV nowadays, is much more driven by Internet and AI investments compared to a high share of telco investments a few year ago.

They did not provide a detailed breakdown of equity value of holdings. It seems to be driven by SVF and start-up investments over recent months. Since last quarter, values are updated quarterly now (instead of daily). Below is my calculation

own spreadsheet, data from IR website, as of Oct 1st, 2020

SoftBank’s market capitalization is $ 143bn, currently. This makes for a discount of 45% compared to reported NAV as of Sept 30. But, reported NAV should not be taken as face value, since selling of assets could trigger significant payments of capital gains tax. Furthermore, reporting data is more than one month ago. Fortunately, Alibaba (BABA) trades about flat since October, even after the steep fall due to the botched IPO of Ant Financial.

The buy backs will serve as a nice driver for shareholder returns, assuming of course, that (i) the valuation gap is closed over time and (ii) SoftBanks asset values (and NAV) hold up well over time or even increase.

Conclusion

For now, I will hold my small position of SoftBank shares. Buy backs should provide further technical upside. Of course, I am aware that this is a rahter risky investment based on underlying asset valuations (and the markets perception of SBG).


I hope you enjoyed my quick update about SoftBank. What is your take?

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